Layoffs Hit Gumroad As The E-Commerce Startup Restructures

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San Francisco startup Gumroad, which lets people sell products directly to consumers by way of quick and simple  links, has been in the process of laying off most of its staff in an effort to run more efficiently. Sahil Lavingia, Gumroad’s CEO and founder, confirmed the layoffs to TechCrunch, and said the company would stay in business.

Gumroad blazed into the market in 2011 under Lavingia, who had dropped out of college and cut his teeth as an early designer for Pinterest. The company quickly raised $8 million in the course of a few months, including a $7 million series A round led by Kleiner Perkins Caufield & Byers. Lavingia — and investors — thought he might have an idea that could soon be a billion-dollar startup: a way for people to make a living as creators via links that takes them directly to a purchase page, where customers can pay for and download those products.

But that rapid growth didn’t quite materialize for the startup. Gumroad’s uphill battle may sound familiar to observers of the industry: the e-commerce business, where services take a small transaction fee of each payment, is one of very low margins. Gumroad’s other challenge is that it also needs to establish a community of creators — including high-profile ones — that are open to selling their products through the service.

Lavingia said he wanted to ensure that the site continues to operate and continue giving creators a way to make money off their products. October was still Gumroad’s biggest month in terms of how much volume the company is doing and how much revenue it’s generating — and how much money is going into creators’ pockets — he said. There are more than 15,000 creators that sell their products via Gumroad.

“This was the hard decision. I didn’t want to make one and then six months from now make another,” Lavingia said. “That would drive people insane. Now we can focus on what we’re gonna do after this. There’s not much more to the fact that we’re gonna come into work and work on Gumroad.

The crux of the issue, essentially, is that Gumroad probably wasn’t growing fast enough. All this taken together can often lead to a challenging fundraising process, and in the end, Lavingia opted to slim down the company. The company had 22 employees as of earlier this year, and it has been in the process of laying off all but what is expected to be around 3 of its staff. (That number could end up being a little higher, Lavingia said.)

“We want to enable every creator on the planet to make a living to do what they want to do, which is make stuff,” Lavingia said. “If you’re a musician you want to pay your rent by making music. My goal as a creator, I want a lot of people to use my software. I would say in that sense, I don’t think our mission has changed.”

Another part of the reason for the layoffs was that Gumroad, while growing, was not growing fast enough necessarily to convince investors to give them a strong deal. The company has raised around $8 million, with both its seed and Series A rounds happening in 2012. Given that the rounds happened so long ago, that would imply that the company was operating at some level of capital efficiency.

“It’s not like this company had this massively high burn rate, they are in the process of building a business,” Kleiner Perkins’ Mike Abbott, who made the Gumroad investment, said. “Building the type of business that Gumroad is takes time and patience.” Abbott stressed that he was a strong supporter of Lavingia and Gumroad.

To be sure, layoffs can happen in any environment — even for companies that are able to generate significant revenue. For example, Twitter laid off 8 percent of its employees as one of the first moves by new CEO Jack Dorsey. Gumroad’s efforts to continue to operate as a leaner team are not uncommon in the startup world. Still, it’s a tough southbound turn for a company that hit the ground running with a lot of promise.

Gumroad had all kinds of potential, and may still have it. It partnered with Hachette to allow the publisher to basically sell books directly through links on Twitter. The company was an early partner with Twitter’s buy button. Lavingia says that Gumroad will continue rolling out new features. For instance, last week, it launched a feature that allows UK-based creators to be directly paid to their bank account instead of just PayPal.

Gumroad started as a product that would help creators sell their products easily through links. But other payments services have also sought to help partners easily accept payments for their products and services, like Stripe and Braintree, and competition has grown significantly for Gumroad. The biggest question, of course, will be which product will be the one that helps the company achieve the potential that investors and observers saw the company had from the start.

“Rarely is it a case where a company grows in a straight, linear line,” Abbott said. “I know that from my own experience, one of the reasons why I respect these kinds of decisions, to make these difficult decisions shows Sahil’s resolve. Building a company is tough; you have to make hard decisions.”